Global Analysis from the European Perspective. Preparing for the world of tomorrow


Eurostat Data Shows That ECB Policy Has Failed Miserably

Since the ECB started its QE program in March last year, it has bought 0.6 trillion euros’ worth of government bonds. European Quantitative Easing was introduced by Mario Draghi to boost the euro zone economy.

The latest  Eurostat data show that the move has failed miserably, with a scant 1.5% year Eurozone growth to date, which is a huge disappointment if one takes into consideration the QE program with a size of 6% of the total Eurozone GDP.  The Eurozone economy grew by 0.5% in the previous quarter, which is exactly the last year’s increase. Quantitative Easing has done little for the Eurozone. March industrial production in the Eurozone is down by 0.8% as compared to February. The latest

European intrabank data show that Spanish and Italian savers are resuming their run on the bank and moving their money to Germany. Capital control makes it impossible for the Greeks. Depositors are afraid of the so-called Dijselbloem bail-in template that makes bank clients eligible for bank losses. In April the

ECB announced it would start to interfere in the private sector by buying corporate bonds, commencing in June. It provides Multinational Enterprises with near zero loans while Small and Medium Size Enterprises (SME) have to pay 5.5 % to 9% for their loans. The ECB decides which part of the European economy will be subsidized with free money, a rather strange move for an independent central bank. For Mario Draghi Independence means that the ECB does not take orders from politicians.

UBS announced it could pass on negative rates to wealthy clients. Unilever sold 300 million bonds with a 0% coupon and a yield of 0.8%. The negative yielding bond market is now valued at 9 trillion dollars. ECB’s policy will have a devastating effect on retirements.

 

Mario Draghi defends ECB independence and ultra-low interest rates
Mario Draghi has hit back hard at German criticism of the European Central Bank’s low interest rates, insisting the ECB does not take orders from politicians.
“We have a mandate to pursue price stability for the whole of the eurozone, not only for Germany,” he said. “We obey the law, not the politicians, because we are independent, as stated by the law.”
Source FT Source 2016-04-21

Investors Fleeing $9 Trillion of Negative Yields Fuel Bond Binge
The driving force behind the bond binge is the growing universe of negative-yielding securities, which has expanded above $9 trillion since the European Central Bank and Bank of Japan cut interest rates below zero. JPMorgan Chase & Co. predicts that, with the supply of debt falling, conditions in the global bond market will be so favorable in 2016 that record-low yields are probably in store. Source Bloomberg 2016-05-12

UBS could pass on negative rates to wealthy clients – CEO
Switzerland’s biggest bank UBS could pass on negative interest rates to wealthy private customers or add new service fees to ensure profitability and capital returns in the current environment, its chief executive said on Tuesday. Source Reuters 2016-05-10

BlackRock’s Larry Fink says negative interest rates are ‘biggest crisis’ in the world
Ultralow rates in the U.S. and negative interest rates overseas a global crisis hurting pension funds and insurance companies, which are unable to meet their liabilities
Bill Gross went as far as to claim that bond investors that buy bonds with negative yields “are thinking and managing assets at the grade-school level,” as they do not understand the absurdity and consequences of negative bond yields — when an investor pays money for the privilege of lending it to governments. Source MarketWatch 2016-04-14


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